According to chief economist Erik Weisman, PhD, and research analyst Sean Cameron, CFA, of MFS Investment Management, 175 securities contributed to half of the net results in 1975. In 2015, this figure had fallen to just 30 companies. They explain that economic activity has become more concentrated among fewer companies. The winners in today’s markets are larger, older, and less dynamic than their competitors.
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We’re already halfway through 2018, plus six months into MiFID II, and research unbundling has been the catalyst for significant transformation across the industry.
New rules, economics, players and the growing role of technology are already paving the way to a new investment research industry. In this brave new world, who will emerge victorious – it’s becoming patently clear that not everyone will be crossing the finish line in the race for innovation.
Active managers are feeling the heat.
Years of underperformance are putting intense pressure on their business model. Risk premia strategies, robot-advisors, systematic funds and alternative data usage are gradually disturbing the quiet territory of discretionary investing: a reminder, if it were needed, of the unimpressed view of the FCA regulator in recent asset management industry surveys. In short, active management is going through an existential crisis.
And things might get even uglier. Artificial Intelligence and its sub-components including Machine Learning, Deep Learning, Natural Language Processing, and the list goes on, are threatening to eradicate any form of human decision-making in investment. It is only a matter of time. The almighty portfolio manager is dead. Vive les machines!